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Wall St and Main St: still at odds.

Last week: US$ strength was the main theme last week and I had been warning about this potential for some time given the bullish chart pattern that had been brewing on the DXY. This US$ strength had the obvious impact on many Forex pairs and Gold and resulted in some great trend line breakout trading opportunities so I hope many of you caught some of these moves! I noted last week there were conflicting market signals and there is similar again this week. With uncertainty in the USA stemming from rising Covid cases, Presidential Election chaos and continued fiscal stimulus debate it was rather surprising to see the major US stock index of the S&P500 close with a bullish weekly candle and as one suggesting bullish-reversal potential! Add to this that the 'Fear index', VIX, closed with another bearish weekly candle and below the 30 threshold and you have to wonder if Wall Street and Main Street are travelling in parallel universes! However, the risk metrics of Emerging markets, Copper and the small caps Russell-2000 all closed lower. As noted last week, September and October are historically weak for stock markets so I do wonder if this sideways / choppy price action might drift on until the November 3rd US Presidential Election?

 

Technical Analysis: As noted over recent months, it is important to keep in mind that this analysis is Technical and chart-based but that any major Fundamental news items, as recently seen with Coronavirus, have the potential to quickly undermine identified chart patterns. This is why it is critical that traders appropriately manage their trade exposure and risk per trade during these volatile market conditions.

 

Trend line breakouts summary:  US$ strength resulted in numerous trend-line breakout trade opportunities last week. Articles published during the week can be found here, here, and here:

 

  • GBP/USD: a TL b/o from for 130 pips:

 

  • AUD/USD: a TL b/o for 240 pips:

 

 

  • EUR/USD: a TL b/o for 200 pips:

 

  • NZD/USD: a TL b/o for 180 pips:

 

  • Gold: a TL b/o trade for $65.

 

  • USD/JPY: a TL b/o from last week's chart pattern for up to 100 pips. Note how the 61.8% fib target worked a treat here!

 

This Week: (click on images to enlarge):

    • DXY: US$ Index: There has finally been a bullish breakout from the bullish-reversal Descending Wedge and I urge traders to keep an eye out for these as they are high probability chart patterns. Price action has also recovered above the recently broken 10-year support trend line so watch for any bullish continuation. However, the daily Ichimoku Cloud remains as resistance to wade through so watch this zone for any new breakout. The main risk events for the US$ this week are the first Presidential debate on Tuesday and the NFP jobs report on Friday. A more in-depth analysis of the FX Indices can be found through this link.

 

DXY daily: watch for any new breakout from the daily Cloud:

 

 

    • Schedule for weekend Market Update posts: The Weekly Market update has, to date, been posted on a Sunday, Australian time. I am looking to delay the release of this update to a Monday, Australian time, which is still a Sunday in many other parts of the world. My analysis takes a full day to complete and I am attempting to shift this load away from my weekend time.

 

    • Risk events: As noted above, the main risk events this week are the first US Presidential debate on Tuesday and the NFP jobs report on Friday.

 

    • Multi-year trend lines: As noted recently and the caution remains valid: multi-year trend lines have been tested / broken on a number of instruments: The FX Indices (DXY and EURX) and the EUR/USD, AUD/USD, NZD/USD, AUD/JPY, GBP/USD and GBP/JPY. Caution is still required here though as trend lines of such duration are often not given up easily so traders should watch for any potential choppiness / consolidation as these levels are negotiated. Many of these levels are back being tested now!

 

    • S&P500: Keep the bigger picture in perspective with the recent moves:

S&P500 yearly: keep this latest move in perspective:

 

 

    • Market Phases: It is important to recall the three main types of market phases: AccumulationParticipation (Up and Down) and Distribution. Traders should monitor the chart of the S&P500 chart for any Distribution type activity that might eventually lead to Participation Down; especially as the S&P500 has pulled back from its latest all-time High. The chart below shows how the S&P500 evolved in the years leading up to, and during, the Global Financial Crisis (GFC). Note how the Distribution phase evolved over a period of many months and there was a double test of the all-time High region. Keep this in mind with the current market action on the S&P500.

 

S&P500 market phases: Global Financial Crisis 2007-2009:

 

S&P500: keep watch for any Distribution type of activity:

 

 

    • Copper: Copper is often viewed as one metric of economic health and closed with a bearish weekly candle and back below the 3 level. However, price action is holding above the 10-year bear trend line for now:

 

Copper weekly: back below the 3 level;

 

    • Emerging Markets: The Emerging market ETF, EEM, has closed with a bearish weekly candle BUT watch for any revised Bull Flag activity:

 

EEM weekly: below the 45 level BUT watch for any new Bull Flag activity:

 

 

    • DJIA: The DJIA closed with a bearish weekly candle but there are a couple of bullish technical features worth observing. Firstly, a potential Bull Flag on the weekly chart. Secondly, note the bullish-reversal Morning Star-style cluster on the last 3 daily candles (third chart). Keep an open mind and watch for any momentum based trend line breakout: up or down!

 

DJIA weekly: watch for any Bull Flag:

 

DJIA daily: watch for any Cloud support:

 

DJIA daily: note the bullish-reversal Morning Star cluster on the last 3 daily candles:

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish-reversal Hanging Man-style weekly candle suggesting this downtrend might be about to pause or even reverse. This latest weekly candle is giving the potential Bull Flag more credibility. However, I still think the psychological 10,000 level could well be tested AND any break below 10,000 would suggest, to me at least, that there could be more bearish activity and I'd then be looking down to the weekly 61.8% Fibonacci, near 8,800. Also remember that technical theory would suggest that the 61.8% Fib level could be tested as part of the zig and zag of any overall bullish continuation move.

 

NASDAQ weekly: watch 10,800 S/R and for any potential Bull Flag activity:

 

NASDAQ daily: keep watch for any Cloud support:

 

 

    • DAX weekly: The DAX closed with a bearish weekly candle so watch for any retreat to the 10,000 S/R level:

 

DAX weekly:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the 'Canary in the Coal Mine' for US stocks and closed with a bearish weekly candle. There has been a recent break of support trend line but, like with the other indices, traders should watch for any Bull Flag activity. The horizontal 1,460 level remains as one 'line in the sand' level to monitor:

 

RUT weekly: watch 1,460 and for any Bull Flag:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish-coloured Spinning Top-style weekly candle reflecting ongoing indecision; this is the fourth consecutive such indecision-style weekly candle. The Elliott Wave indicator is still suggesting an uptrend from here and any renewed sell-off with stocks would likely underpin this Bond ETF:

 

TLT weekly:

 

 

    • VIX: the Fear index closed, somewhat surprisingly, with a bearish-coloured Spinning Top weekly candle, reflecting indecision, and remains below the key 30 level. I say 'surprising' in that it closed lower; with all this to and fro I would expect volatility to be on the rise. Note the revised trend lines. Any sell off with stocks would likely help to underpin the index:

VIX weekly: watch the 30 level for any new make or break:

 

 

Calendar:    Courtesy of Forex Factory: Note there is also the first US Presidential debate on Tuesday.

 

 

 

Earnings: Courtesy of Earnings Whispers: still winding down:

 

 

 

Market Analysis:

 

S&P500The S&P500 index closed with a bullish-reversal Hammer-style weekly candle and continues to set up within a potential Bull Flag. Trading volume remains below the 200 SMA and near a bear trend line so watch for any Volume breakout to confirm a Flag trend line breakout; either up or down:

 

S&P500 ETF: SPY weekly: Watch for any uptick with Volume that might help confirm a Bull Flag b/o:

 

Price action on the S&P500 is back, yet again, near the whole-number 3,300 this week so this remains the level to monitor for any new make or break.

There are revised 4hr chart Bull Flag trend lines to monitor as well.

As noted recently: The weekly S&P500 chart below shows that the 61.8% Fibonacci level of this recent swing-High move (March 2020- September 2020) is down near the 2,700 region. Technical analysts would suggest that a pullback to this 61.8% level would be in order; even if there is to be ultimate bullish continuation. Trends do not travel in straight lines unabated so traders should be aware of this zig-zag potential.

Bullish targets: any bullish 4hr chart Bull Flag trend line breakout would bring 3,400 & 3,500 S/R into focus.

Bearish targets: any bearish 4hr chart retreat from 3,300 would bring the 3,200 level back into focus as this remains near the 4hr chart's 61.8% Fibonacci level. Beyond that, the weekly chart's 61.8% Fibonacci, down near 2,700, would come into focus.

  • Watch the 4hr chart's Bull Flag trend lines and 3,300 for any new make or break:

 

 

ASX-200: XJO: The ASX-200 closed with a bullish weekly candle following last week's clue of the bullish-reversal Gravestone Doji-like weekly candle; as shown in the chart below:

 

XJO weekly: note the bullish follow-through after last week's Gravestone Doji like:

 

Trading Volume was not as large last week but is still just above the trend line and moving average for the time being.

 

XJO weekly: trading volume is just holding above the trend line and moving average for now:

 

Price action remains just below the psychological 6,000 level so this level will be in focus in the coming week. There are also revised 4hr chart trend lines to monitor for any new momentum breakout.

Bullish targets: Any bullish 4hr chart trend line breakout would bring the psychological 6,000 into focus. After that, watch the recent High, near 6,200, and, then, whole number levels on the way back to the previous all time High, circa 7,200.

Bearish targets: Any bearish 4hr chart trend line breakout below 5,900 would bring 5,800 into focus followed by the previously broken 11-yr trend line.

  • Watch for any new 4hr chart trend line breakout:

 

 

Gold Gold closed with a large, bearish weekly candle in response to the developing US$ strength. One of the most significant observations though is the close back below the key $1,900 level. Regular readers of this post will recall how this level has been in my sights for many months now as this marks the region of the potential Inverse H&S or Cupping pattern; as described again below:

As mentioned over recent weeks: the weekly chart still has the look of a broad Inverse H&S pattern; or some may see this as a broad Cupping style pattern. Both are rather similar though as they are bullish patterns and suggest follow-through to the order of magnitude of the depth of the Cup / height of Head. In this case, that move is of around either $800. Keep watch of $1,900 now that price action is trading above this neckline region!

$1,900 remains the region in focus for any bullish Cup or Inverse H&S breakout:

  • Any hold above $1,900 would support the Cup pattern thesis.
  • Any new move move back below $1,900 would support the Inverse H&S pattern thesis.

Traders need to watch this $1,900 level over the coming days / weeks especially as the US$ index has now recovered back above the recently broken 10-year support trend line:

  • any US$ move back below this multi-year support trend line could help send Gold higher.
  • any US$ hold back above this support trend line could keep Gold range-bound. This would help to further develop the Inverse H&S pattern.

The monthly candle will close on Wednesday and so traders need to monitor this close. A monthly close below the $1,900 would support the bullish-reversal Inverse H&S thesis AND this would suggest the potential for months of broad-ranged sideways choppiness as the Right Hand Shoulder might develop. Added to this, the monthly chart below shows that the bearish-reversal Evening Star pattern is still brewing as well so this is another technical pattern to watch out for.

The only salve for shorter-term Gold Bulls is the look of a potential Bull Flag on the daily chart however bearish momentum is building on this time frame.

There are revised 4hr chart triangle trend lines to monitor for any new momentum breakout.

Bullish targets: any bullish 4hr chart triangle breakout would bring $1,900 into focus followed by $2,000.

Bearish targets: any bearish 4hr chart triangle breakout would bring $1,800 S/R back into focus.

  • Watch for any new momentum-based 4hr chart triangle breakout:

 

 

EUR/USD: The EUR/USD closed with a large, bearish weekly candle and back down near the recently broken 13-year bear trend line making this the region to watch for any new significant make or break. I have been warning for weeks that these major trend lines are not given up easily and so traders need to watch this region closely in coming sessions in case this trend line ends up forming support.

There are also revised 4hr chart trend lines to monitor for any new breakout and note the look of a bullish-reversal Descending Wedge here.

Bullish targets: Any bullish 4hr chart descending wedge breakout would bring the the 13-year bear trend line into focus followed by whole-number levels on the way up to the previous weekly chart High, circa 1.26.

Bearish targets: Any bearish 4hr chart descending wedge breakout, below 1.16, would bring 1.15 into focus.

  • Watch 1.16 S/R and for any 4hr chart descending wedge breakout:

 

 

AUD/USD: The Aussie closed with a bearish, essentially 'Engulfing', weekly candle and back down near 0.70 S/R making this the level to watch for any new make or break.

There are revised trend lines on the 4hr chart to monitor for any new momentum-based breakout.

Keep in mind, though, that price action continues to hold above the recently broken upper trend line of the multi-year bullish-reversal Descending Wedge.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.71 and then 0.72 into focus as the latter is near the 4hr chart's 61.8% fib, the 4hr chart's 200 EMA and weekly 200 EMA.

Bearish targets: Any bearish 4hr chart trend line breakout below 0.70 would bring the recently broken 9-11 year bear trend line into focus.

  • Watch for any new 4hr chart trend line breakout:

 

 

AUD/JPY:  The AUD/JPY closed with another large, bearish weekly candle and and down near 74 SR making this the level to watch for any new make or break.

There are revised 4hr chart triangle trend lines to monitor for any new momentum breakout.

Bullish targets: Any bullish 4hr chart trend line breakout would bring whole number levels on the way back to the the 7-yr bear trend line as this is near the 4hr chart's 61.8% Fibonacci.

Bearish targets: Any bearish 4hr chart trend line breakout below 74 would bring whole-numbers on the way down to 65 S/R.

  • Watch for any new 4hr chart trend line breakout;

 

 

NZD/USD: Like the Aussie, the Kiwi closed with a bearish, essentially 'Engulfing', weekly candle and back down near the recently broken 7-year bear trend line. As with the EUR/USD, I am not surprised to see this multi-year trend line tested and it is what price action does from here that is of major interest.

There are revised trend lines to monitor for any new breakout.

Bullish targets: Any bullish 4hr trend line breakout would bring 0.66 and, eventually, 0.67 into focus as the latter is near the 4hr chart's 61.8% fib level.

Bearish targets: Any bearish 4hr chart trend line breakout, below the 7-yr TL, would bring whole number levels on the way down to 0.625 into focus.

  • Watch for any 4hr chart trend line breakout:

 

 

GBP/USD: The Cable closed with a bearish weekly candle and below the multi-month support trend line and 1.28 S/R but it continues shaping up in a potential bullish-reversal Descending Wedge so watch the 4hr chart trend lines for any new breakout.

Bullish targets: Any bullish 4hr chart Descending Wedge breakout would bring whole-number levels on the way to 1.32 back into focus as this remains near the 4hr chart's 61.8% Fibonacci.

Bearish targets: Any bearish 4hr chart Descending Wedge breakout would bring whole-number levels on the way down to 1.22 into focus as this is near the daily chart's 61.8% fib.

  • Watch for any new 4hr chart Descending Wedge breakout:

 

 

USD/JPY: The USD/JPY closed with a bullish-coloured, but almost 'Inside', weekly candle and back above the 105 level.

There are revised 4hr chart trend lines to monitor for any new breakout.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 106 into focus followed by whole-number levels on the way up to the recent High, near 112.

Bearish targets: Any bearish 4hr trend line breakout would bring 105 into focus followed by whole-number levels on the way down to 100 S/R.

  • Watch for any new 4hr chart triangle breakout:

 

 

 

GBP/JPY: The GBP/JPY closed with another bearish-coloured Spinning Top weekly candle BUT is still shaping up in a potential bullish reversal Descending Wedge on the 4hr chart time frame.

Bullish targets: Any bullish 4hr chart wedge breakout would bring whole-numbers on the way to 139 into focus as this is near the 4hr chart's 61.8% Fibonacci.

Bearish targets: Any bearish 4hr wedge breakout would bring whole-numbers on the way down to 130 S/R into focus.

  • Watch for any 4hr chart wedge breakout:

 

 

USD/CAD: The USD/CAD closed with a large, bullish weekly candle benefiting from the recent US$ strength.

The bullish breakout from the bullish-reversal Descending Wedge is progressing BUT watch the daily 200 EMA above for any new make or break.

Bullish targets: Any bullish breakout above the daily 200 EMA would ultimately bring 1.40 into focus as this is near the weekly chart's 61.8% Fibonacci.

Bearish targets: Any bearish break below the support trend line would bring whole-number levels on the way back down to 1.30 into focus.

  • Watch the daily 200 EMA for any new make or break.